Ilana Mercer, June 3, 2011

The notion that not raising the debt-ceiling must necessarily result in the US defaulting on its debt is nonsensical. In so asserting, Treasury Secretary Tim Geithner is talking tripe. “Tim” has warned of an “economic catastrophe” should the government’s credit limit not be increased, and has guaranteed that a “failure to raise the limit would precipitate a default by the United States.”

As explained by U.S. Senator Pat Toomey, in a January 19 Wall Street Journal op-ed, “The amount of money required to continue to make payments on all the U.S. government debt is a small fraction of the amount of revenue the U.S. government raises.” Blogging for the Library of Economics and Liberty’s EconLog, David Henderson made quick work of the Geithner fallacy:

The treasury secretary “is effectively saying that if the government wants to spend x and has only enough money to spend 0.67x, then not spending on the other 0.33x is a failure to keep an obligation. In a political sense, that might be: the government has made a lot of spending promises to a lot of people. But in an economic sense, it’s not. On the narrow issue of whether failure to raise the debt limit would necessarily mean U.S. government default on its debt, Toomey is right and Geithner is wrong.” Here’s the simple math, courtesy of Rep. Ron Paul: “Interest payments on our federal bond debt likely will amount to about $500 billion for fiscal year 2011, an average of $41 billion per month. Federal tax revenues vary by month, but should total around $2 trillion to $2.5 trillion for FY 2011– an average of perhaps $180 billion per month. So clearly the federal government has sufficient tax revenue to make interest payments to our creditors. For now, those interest payments represent about 12 percent of the total federal budget.”

On reflection, the US Treasury takes in enough loot to pay down the interest on the debt as well as a portion of the principal. Matching federal spending with federal revenue: what a concept! And what a tonic to our moribund economy that would be!

To the soul of the subject: The engorged organisms (Anthony D. Weiner is a sample) that currently control the economy from DC can discharge their responsibility to creditors without authorizing more borrowing. To do so, however, they will have to cease their many unconstitutional endeavors, and break the promiscuous promises they’ve made to certain voters at the expense of the vassals, out of whose hides these “promises” are carved.

As it stands, Republicans—and a few Democrats, one of whom has even cosponsored an amendment to cap federal spending—have done no more than perform a budgetary Bonnie and Clyde: If Democrats want to continue the heist and run deficits and debts to eternity, they will need to promise—nudge-nudge; nudge-nudge, know what I mean? know what I mean?”—budget cuts, preferably in the trillions. Or, introduce, not necessarily pass, a balanced-budget amendment.

Another tactic taken by the competing gangs of lawmakers is to guarantee an economic apocalypse if the US government doesn’t continue borrowing apace. This is something the sniveling House Republican Speaker John Boehner has hinted at, but failed to parse. “Apocalypse Now” forecasts cannot be verified, which is why politicians, their in-house economists, and other vested interests make them.

Above all, the emperor’s experts want you to believe that the values and virtues ordinary mortals hold themselves to don’t apply to government; that macroeconomics and microeconomic are two separate solitudes, governed by different laws. But the laws of economics are natural, not political, laws. These very laws Thomas Jefferson was enunciating when he warned that “the greatest danger came from the possibility of legislators plunging citizens into debt.” (Excerpted in “Liberty, State & Union: the Political Theory of Thomas Jefferson,” by Professor Marco Bassani.) “We must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude.”

When Standard & Poor’s cut the American credit outlook to negative, the Financial Post’s Terence Corcoran mocked the credit ratings agency’s “special talent for arriving at the morgue and predicting the demise of the deceased.”

Indeed, the United States has already passed on as the world’s economic leader. Having flouted Jefferson for too long, America has succumbed to public debt, the “fore horse for oppression and despotism,” after which “taxation will follow, and in its train wretchedness and oppression.”